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Microsoft added nearly $500 billion in market value ($480 billion, to be exact) in a single trading session on Thursday\u2014a more than 17% surge\u2014after reporting fiscal fourth-quarter results that showed Azure revenue surpassing $100 billion for the first time, with Microsoft Cloud revenue up 27% year-over-year to $59.3 billion.<\/p>\n
But blowout results, even those released within hours of Microsoft\u2019s, haven\u2019t been greeted with similar euphoria. Take Samsung, which posted a record $62 billion profit, a 19-fold increase, and then saw stocks sell off, or Meta, punished after another quarter of growing revenue. The Dow fell more than 1,100 points on Wednesday, before Microsoft reported its blowout quarter after the close.<\/p>\n
Three market watchers looked at the same week and came away with three different explanations for why.<\/p>\n
Steve Sosnick, chief strategist at Interactive Brokers, had told Axios earlier in the week that the market narrative had flipped from \u201call news being good news for AI\u201d to something like \u201clet\u2019s look under some rocks and see what the risks are.\u201d After Microsoft\u2019s earnings, he laughed as he told Fortune<\/em> the story had changed \u201cjust a tad.\u201d But he didn\u2019t think the fundamental question was resolved. \u201cWe are in a \u2018rip up the script every day\u2019 kind of mode,\u201d he said.<\/p>\n To Sosnick, this week\u2019s swings are simply too large and too fast to be explained by fundamentals alone. Microsoft jumping 17%, Micron rising 18% on unremarkable news, IBM getting cut 25% on a profit warning weeks earlier \u2014 these are the kinds of moves that make him uncomfortable. He acknowledged it was a \u201ccliche\u201d to go there, but then he went there: \u201cI hate to say it, but the only time I can recall these sort of swings is the 1999, 2000 period.\u201d That era\u2019s dot-com bubble also saw \u201ceverybody rushing in and out of stocks,\u201d he added.<\/p>\n What worries him more than the historical parallel is that today\u2019s market has far more tools to amplify those swings than it did back then: weekly options, leveraged ETFs, and other products that simply didn\u2019t exist a generation ago. He stopped short of blaming them directly \u2014 \u201cI\u2019m not going to say they cause the volatility, that\u2019s not fair\u201d \u2014 but sees a \u201cgenerational\u201d effect running through the market\u2019s behavior, invoking the \u201cfinancial nihilism\u201d framing that some see active in markets. <\/p>\n That framing lines up with a growing body of research. A Harris Poll found 46% of Gen Z respondents agree that \u201cno matter how hard I work I will never be able to afford a home I really love,\u201d while 42% of Gen Z investors hold cryptocurrency compared to just 11% who hold a retirement account. The World Economic Forum has flagged the term, reportedly coined in 2021, as one of the most significant economic trends shaping the next decade.<\/p>\n The specific stress point that resolved this week, in Sosnick\u2019s view, was the forced unwind of Leopold Aschenbrenner\u2019s hedge fund, Situational Awareness LP. The fund, founded by the 24-year-old former OpenAI researcher, had reportedly returned 439% net through June 30, according to an investor letter cited by the Financial Times, but was running gross exposure as high as four times its capital, with its top five positions making up more than three-quarters of its disclosed long book. <\/p>\n A roughly 30%-plus decline across core holdings in July\u2014driven by losses in AI infrastructure names like SK Hynix and a large Nebius stake, alongside soured short bets against software companies including Adobe\u2014was enough to wipe out the fund\u2019s equity cushion. Prime brokers Goldman Sachs, JPMorgan Chase, and Bank of America issued margin calls, and the fund ultimately sold its entire public equities book\u2014longs and shorts alike\u2014to a single unnamed buyer before Thursday\u2019s open.<\/p>\n The market\u2019s behavior leading up to that resolution, Sosnick said, reflected a growing awareness that \u201csome leveraged investments were going wrong.\u201d When the Aschenbrenner fund was removed, markets seemed to exhale. \u201cThe market is reacting to this like, \u2018Okay, we\u2019re done, the leveraged trades are behind us,’\u201d he said \u2014 but the scale of the swings in both directions still gives him pause. When SK Hynix and Samsung posted positive results and markets shrugged, he took note. \u201cWhen stocks react poorly on good news, it\u2019s telling you there\u2019s something really wrong in the market structure.\u201d<\/p>\n That framing lines up with a growing body of research. A Harris Poll found 46% of Gen Z respondents agree that \u201cno matter how hard I work I will never be able to afford a home I really love,\u201d while 42% of Gen Z investors hold cryptocurrency compared to just 11% who hold a retirement account. The World Economic Forum has flagged financial nihilism, a term reportedly coined in 2021, as one of the most significant economic trends shaping the next decade.<\/p>\n Melissa Otto, who runs research for Visible Alpha at S&P Global, rejected this framing outright when it\u2019s presented to her directly. \u201cI don\u2019t understand where the nihilism comes from,\u201d she said. Her read of this week\u2019s Microsoft rally is not psychological but mechanical: For the first time, a hyperscaler has produced a \u201cvery quantifiable metric\u201d\u2014Azure\u2019s accelerating growth\u2014that demonstrates the AI business model is actually working, rather than just promising to work eventually. Microsoft\u2019s own numbers back up her framing: Azure revenue growth accelerated well past expectations in the most recent quarter.<\/p>\n Otto\u2019s framework for understanding the broader volatility centers on what she calls an \u201coverhang\u201d \u2014a market thesis stuck in an unusually wide debate, which she said is directly visible in her firm\u2019s data as a widening dispersion in analyst estimates. \u201cWhen I see estimates narrow, that to me means there\u2019s less debate in the market and you\u2019re going to see less volatility,\u201d she said. \u201cBut when I see the opposite\u2026 it means the debates are getting much more polarized and much more extreme.\u201d<\/p>\n That was what snapped back after Microsoft\u2019s figures, she said\u2014an overhang around AI spending that had been building for roughly six to eight weeks, driven by a market that shifted into a \u201cshow me the money\u201d mood. After all, there is roughly $1.5 trillion in combined AI capex planned by Microsoft, Meta, Amazon, and Alphabet between this year and next, and both Otto and Sosnick noted that investors have been used to getting all of those billions of dollars in stock buybacks for decades now.<\/p>\n Otto\u2019s explanation for Microsoft\u2019s specific advantage rests on enterprise entrenchment rather than model quality, which she expects will commoditize over time regardless of which AI lab wins any given benchmark. \u201cName me a financial analyst working on Wall Street that doesn\u2019t use Excel,\u201d she said. \u201cName me an investment banker that doesn\u2019t use PowerPoint\u2026 it\u2019s just in the DNA of these industries.\u201d By her account, that ubiquity gives Microsoft a durable channel to sell Azure and Copilot into enterprises that Amazon Web Services and Google Cloud can\u2019t easily replicate, since Azure benefits from being pre-embedded in existing enterprise software stacks.<\/p>\n Derek Horstmeyer, a finance professor at George Mason University, opened with the detail that may have gotten lost in the Thursday rally: Aschenbrenner\u2019s losing positions very likely would have turned around the very next day. \u201cI guess the worst part of it is everything reversed today \u2014 if he had survived, he could have made it through.\u201d<\/p>\n That\u2019s not coincidence to him, but a feature. The go-for-broke attitude that drove Situational Awareness LP \u2014 4x gross leverage, concentrated positions, conviction bets \u2014 is the same attitude he sees expressed differently in retail markets. \u201cIt really is an attitude of go broke or shoot for the moon \u2014 use as much leverage as you can.\u201d The fund and the retail crypto buyer are operating from the same psychology at different scales.<\/p>\n But Horstmeyer\u2019s deeper concern isn\u2019t leverage or sentiment. It\u2019s the structure of the AI capex race itself. Every hyperscaler is overspending, free cash flow is going negative across the board, and nobody wants to be left out. He\u2019s watched this before. \u201cEvery company got into the streaming wars, and it\u2019s money-losing for a lot of them, and they haven\u2019t given up \u2014 they all still have their own platforms,\u201d he said. There will eventually be a winner in AI infrastructure, \u201cbut I don\u2019t want to be in the race of finding the one that\u2019s going to win.\u201d<\/p>\n His clearest illustration of the market\u2019s uneven bets: Apple, but largely because it lacks an AI strategy and so isn\u2019t investing hundreds of billions of dollars because it missed its chance to become a hyperscaler. \u201cBecause they\u2019re not in the AI race, they\u2019re kind of doing okay,\u201d he said, and indeed Apple recently hit $5 trillion in market cap, and has regained its perch above Nvidia as the world\u2019s most valuable company.<\/p>\n He acknowledged the long-term risk that Apple could be genuinely behind, but notes the company\u2019s outsider status has, for now, insulated it from the volatility hitting AI-exposed peers. \u201cIt\u2019s not a Silicon Valley mindset,\u201d he said.<\/p>\n Perhaps Horstmeyer\u2019s most striking contribution is procedural: He runs a student-managed investment fund at George Mason with major portfolio votes every three to six months, and the group is four days from a vote that has split sharply. \u201cOne side wants to get out of the AI trade, and some want to double down and invest in this very niche, fiber-optic company\u2014basically a supplier for a data center,\u201d he said. \u201cSome students are like, \u2018this is the absolute future,\u2019 and some don\u2019t see it at all.\u201d<\/p>\n He\u2019s noticed a pattern in who lands on which side. \u201cThere\u2019s a definite correlation between the kids who like crypto\u201d and greater risk tolerance toward AI infrastructure bets, he said, and others, usually by-the-book accounting students, are more \u201cprudent\u201d and tend to go the other way. Human nature, he said \u2014\u00a0go figure.<\/p>\n<\/div>\n #Microsofts #billion #rally #fuels #debate #financial #nihilism #true #moat #finally #coming #view<\/p>\n","protected":false},"excerpt":{"rendered":" Microsoft added nearly $500 bi… <\/p>\n","protected":false},"author":1,"featured_media":1254,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[432,2403,1302,755,2402,121,2399,166,663,2182,2401,2400,64,145,2259],"class_list":["post-1253","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-finance-news","tag-billion","tag-coming","tag-debate","tag-earnings","tag-finally","tag-financial","tag-fuels","tag-markets","tag-microsoft","tag-microsofts","tag-moat","tag-nihilism","tag-rally","tag-true","tag-view"],"yoast_head":"\nThe fundamentals argument<\/h2>\n
The capex skeptic<\/h2>\n